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Despite fraud attack, GBTI exhibits resilience

Slower economic expansion contributed to marginal asset advances while fraud issues restricted profit growth at Guyana Bank for Trade & Industry Ltd (GBTI). The country’s second largest bank is 61 per cent owned by Secure International Finance Company Inc, which, in turn, is entirely owned by Edward Beharry and Company Ltd.

After Larry Nath completed his assignment with the bank in late 2017, he declined the offer of CEO with them. In the interim, Richard Isava was appointed executive director in early January 2018, a new CEO is expected to be selected and appointed in the not-too-distant future.

We will now review GBTI’s results for the year ended December 31, 2017.

Movements

in financials

Total assets edged up from G$98.37 billion to G$98.58 billion (about TT$3 billion). Assets denominated in foreign currencies totalled G$21.4 billion, of which the largest component was G$21 billion, which was held in US dollars.

Net loans declined from G$45.07 billion to G$44.06 billion. Contributing to this fall was higher impairment allowances, which rose to G$3.65 billion from G$3.37 billion. Its largest gross exposures were G$24.5 billion to the services and distribution sectors and G$13.8 billion to households.

Its advances to both the agriculture and manufacturing sectors exhibited declines; the former closed at G$4.7 billion from G$5.8 billion while the latter ended at G$3.2 billion from G$3.8 billion. Notably, its loans to the mining and quarrying sector climbed from G$1.2 billion to G$2.2 billion.

In addition, the value of its 40 per cent stake in Guyana Americas Merchant Bank Inc improved to G$252.7 million from G$247.7 million; this change was largely influenced by a greater profit of G$620,000 versus G$143,000.

Lower new additions saw the value of property and equipment slip to G$6.9 billion from G$7.07 billion.

Other assets edged up to G$1.63 billion from G$1.58 billion. Here, the two largest swings were shown under taxes recoverable and interest and commissions accrued; the former closed at G$501.4 million from G$297.6 million while the latter ended at G$345.5 million from G$695 million.

The defined benefit pension asset more than doubled to G$66.1 million from G$30.5 million. This improvement reflected the favourable changes between the fair value of the pension plan’s assets and the present value of its future obligations. The defined benefit obligations increased to G$751 million from G$691 million while the supporting assets advanced to G$817.5 million from G$721.8 million.

Cash resources improved from G$21.7 billion to G$22.5 billion. The cash element expanded to G$2.0 billion from G$1.9 billion. In addition, excess reserves held at the Bank of Guyana swelled to G$6.0 billion from G$2.6 billion. In contrast, balances with other banks dropped to G$4.5 billion from G$5.9 billion. Finally, cheques and other items in transit contracted to G$621 million from G$1.6 billion.

Total liabilities fell from G$83.9 billion to G$83.2 billion. Of this total, G$6.3 billion was denominated in US dollars.

Customers’ deposits ended at G$81.7 billion from G$82.9 billion. This decline was concentrated under term deposits, which fell to G$15.32 billion from G$17.35 billion. The increase in savings deposits to G$46.1 billion from G$45.06 billion helped contain the contraction. Deposits from both the commercial and personal sectors exhibited increases, however, deposits from state entities contracted by G$2.2 billion while that from other enterprises retreated by G$1.03 billion.

Other liabilities climbed from G$1.05 billion to G$1.52 billion. The bulk of this increase was concentrated under accrued expenses, which soared to G$612 million from G$141 million. Included in this sum was G$470 million, which reflected a provision for fraud losses.

Both share capital and statutory reserves were stable at G$800 million each. The general banking reserves increased from G$13.4 million to G$24.3 million.

Other reserves closed at negative G$73 million from negative G$96.5 million and benefited from two favourable changes. First, the available-for-sale investments profited from appreciation of G$19 million.

Also, its share of comprehensive income in its associated company improved by G$4.4 million.

Retained earnings ended at G$13.8 billion from G$12.9 billion. The brought forward balance was boosted by the current period’s profit of G$1.52 billion and reduced by G$600 million in dividends.

The weighted average number of shares was unchanged at 40,000,000; consequently, the book value of each share increased from G$360.62 to G$384.21.

Revenues and profit

Net interest income declined by 16.3 per cent from G$5.05 billion to G$4.22 billion (about TT$128 million). The interest income component contracted from G$5.96 billion to G$5.01 billion. Consistent with lower loan balances and its need to strengthen credit quality, interest on loans and advances retreated to G$3.7 billion from G$4.5 billion.

In addition, influenced by lower yields on treasury bills, interest on investments fell to G$1.19 billion from G$1.41 billion. However, other interest income surged from G$66 million to G$136 million. Both the decline and change in the types of customer deposits held contributed to a fall in the cost of those funds, which registered at G$790 million from G$912 million.

Other income improved from G$2.35 billion to G$2.47 billion. Here, exchange trading and revaluation gains soared from G$610 million to G$1.12 billion. In contrast, rental and other income fell to G$854 million from G$1.23 billion while commissions slipped to G$492.5 million from G$513 million.

These changes saw net interest and other income close at G$6.69 billion from G$7.4 billion.

General administrative expenses soared from G$389 million to G$925 million; this included an allocation of G$470 million for fraud charges initiated by gold dealer, Saddiqi Rafeek Mohamed Rasul, in March 2017 at the Bartica branch of Citizens Bank. That item also included additional legal fees relating to its defence for charges brought by the Special Organised Crime Unit (SOCU) against the bank and its directors concerning the Bartica matter and more vigorous debt recovery efforts.

Meaningful declines were recorded under marketing and public relations and other operating expenses; the former fell to G$55.4 million from G$73.6 million while the latter retreated to G$1.3 billion from G$1.8 billion.

Net loan impairment costs declined from G$899 million to G$587 million. The loan impairment expense fell from almost G$1.0 billion to G$625 million while recoveries slowed to G$38 million from G$101 million.

The share of profit from its associate increased from G$143,000 to G$620,000. These changes resulted in a pre-tax profit of G$1.88 billion (2016: G$2.53 billion).

Although the standard rate was 40 per cent for both periods, the effective tax rate eased minimally to 19.5 from 19.7 per cent. Credits for both depreciation and tax-exempt income helped reduce the charge. With a lower tax base in effect, the tax charge fell from G$500 million to G$368 million. Consequently, the net profit fell from G$2.03 billion to G$1.52 billion. These movements translated to EPS of G$38.01 versus G$50.81 for 2016.

Divisional contributions

In addition to the falls in net interest income and other income, the retail and commercial banking division’s results suffered from the fraud losses and additional legal fees, as referenced earlier.

Despite lower interest income, the treasury division benefited from the higher exchange trading gains, which helped it to record a 15 per cent larger profit. In 2017, gold declarations topped 653,754 troy ounces, which saw it remain a significant contributor to Guyana’s GDP. Even against that strong background, the gold trading segment experienced a 31 per cent decline in revenues and recorded a 58 per cent fall in profit.

Investor returns

GBTI’s share price on the Guyana Stock Exchange closed at G$448 on December 19, 2016. By February 27, 2017, the price had fallen to G$400.00 but then, less than a month later, on April 24, 2017, the price closed at G$460 and then ended 2017 at G$450. Over the one-year period, it experienced a meagre G$2.00 appreciation.

The appointment of Richard Isava on January 8, 2018 as its new (interim) executive director seems to have had a positive effect on the share price. It breached the G$500 mark on April 4, 2018. After advancing to G$570 as at the end of May 2018, it ended at G$565.20 as at mid-July 2018.

In line with lower profits, dividends declined from G$17 for fiscal 2016 to G$14 for fiscal 2017.

Relating that dividend to the recent share price of G$565.20, the yield is 2.48 per cent. That price also reflects a P/E multiple of 14.9 and a premium of 47 per cent to its book value of G$384.21.

These multiples are very similar with the recent patterns seen on the buoyant Guyanese Stock Exchange during 2018.